On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $484,163.65, a price that yields a 11% effective annual interest rate. The bonds carry a 10% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2022, and are being held to maturity.
Required:
| Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the: |
| 1. | straight-line method of amortization |
| 2. |
effective interest method of amortization |
1. 
2.
Homework Answers
Requirement 1: (Under straight-line)
![Date Jan.1 Account title and Explanation Investment in Held-to-Maturity Debt Securities Cash [To record investment in bonds]](http://img.homeworklib.com/questions/86d46640-5d22-11ea-a45c-6bbbf60b0c4f.png?x-oss-process=image/resize,w_560)
Calculations:
i.Cash = Face value x Stated rate
= $500,000 x 10% x 6/12
= $25,000
ii. Discount amortized:
Requirement 2: (Under effective interest method)
![Date Jan.1 Account title and Explanation Investment in Held-to-Maturity Debt Securities Cash [To record investment in bonds]](http://img.homeworklib.com/questions/87956f40-5d22-11ea-9847-9f3a6d0428ca.png?x-oss-process=image/resize,w_560)
Calculations:
Cash received = $500,000 x 5% = $25,000
Interest income = Preceding carrying value x 5.5%
Increase in carrying value = Interest income - Cash received
Carrying value = Preceding carrying value + Increase in carrying value
Add Answer to:
On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65,...
On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $484,163.65,...
On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
2....
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On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
2....
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